Washington, DC: India's recent economic performance has been impressive but it needs to reduce its high public debt and undertake structural reforms to further deregulate its economy to have a sustainable and more broad-based growth, a senior IMF official has said at a Press Briefing on IMF Asia and Pacific Regional Economic Outlook.
"Well, one can be optimistic about China and India. Both represent remarkable success stories, China's going back a long way. I think the increase in India's growth to high levels is more recent, but nonetheless impressive," IMF Director Asia Pacific Department, David Burton said.

"And India, too, has done remarkably well in recent years. But it faces a number of challenges. It has still high public debt, although it's made impressive progress in reducing its fiscal deficit in the last few years. It's recently been facing some inflation pressures, although they've taken steps to tighten monetary policy and those appear to have been reasonably effective so far.

And of course, above all, there's a range of structural reforms that India needs to take to further deregulate and open its economy so that it can have more broad-based growth, particularly in the manufacturing sector going forward, to drive growth and to drive the employment creation that it will need, particularly with its relatively young population and the need to provide jobs for new entrants for the labor force," he said.

When asked about why China and India are so crucial to driving economic growth at the moment, MR. Burton replied "Well, I guess the simple answer is that they're both large economies and they're both growing very fast. And I should point out that all our world economic outlook numbers are done on a PPP basis, so that global growth, and contributions to global growth, are calculated using PPP weights, not market exchange weight rates."

"And India, too, though it's historically been more closed than China, has been opening up. And it is having a greater impact than it used to through trade channels, although it remains somewhat less open than China."

"They [China and India] do account for a lot of growth, but the initial impetus to growth still comes very much from domestic demand in the rest of the world and not domestic demand generated independently in Asia," said Mr. Steven Dunaway, Deputy Director of the IMF's Asia and Pacific Department.

"I guess to the extent that in India, for example, that states have some autonomy in the policies that they follow, and it's up to individual states too to make sure that they follow policies that are conducive to growth and that they don't get left behind," Burton responded to a question, "Is there a general apprehension that is building in people like you that in all these runaway economic growth in India, China, at some stage some provinces are just going to be left behind?"

Ms. Kalpana Kochhar, Senior Advisor of the Department, adding to Burton's response, said "Sure. We're actually doing a study on the increase in inequality. You're quite right, it has increased. Poverty has come down but inequality has gone up.

An interesting element of that study is that across states, the states that have de facto liberalized labor laws or are more liberal in applying the labor laws, tend to have had a smaller increase in inequality. So there are definitely policy links, as David just said, about which states and the way they run their policies and the impact. And the lessons for the Indian government are, in fact, in addition to the ones that he mentioned. Education is very important. The link between the skill premium and inequality is very close in our results. And are labor laws, in order to generate more employment opportunities for low-skilled workers."